Loyalty pays – the banks!
Forget loyalty. Even a hint of faithfulness to your bank can cost you money. I
have been preaching this message for years. And this week a useful analysis from
research group Defaqto confirmed the cost of staying true.
The average interest you will get on £1000 in an easy access savings account is
0.85%. But the rate paid on accounts launched this year is 1.89%. Still pretty
terrible but more than three times the rate paid on accounts launched before
2009 which was just 0.68%. In other words the banks tempt you in with a good
rate and then slash it.
A familiar technique used by banks to lure us in is a bonus rate. This higher
rate normally applies for around a year. Birmingham Midshires Building Society
is now offering 3.15% on its telephone extra instant access account which puts
it well in the top five. But that includes a bonus of a staggering 2.65% for 12
months. So in a year you could be earning just half of one percent (before tax)
on your money. And that would plunge this account down from 3rd to
about 85th. And – believe it or not – there are another 185 accounts
below that, the worst paying just 0.01%. In other words if you left £1000 in
there for a year you will get just 10p interest – before tax.
Another trick is to offer you a good rate but then penalise you if you take your
own money out of the account. For example, West Bromwich building society pays a
top ten rate of 2.8% on savings of £1000 or more. But if you take money out more
than three times in the year (1 May to 30 April) then the rate is slashed to
just 0.05% on the money left in there until the next 1 May.
And finally beware those ‘regular’ savings accounts which promise 5% on your
savings if you put money in regularly over the year. Sounds good. But the offer
only lasts twelve months. So only the first amount you put in gets the high rate
for a whole year. The last amount gets it for just one month. So the average
rate paid on the money that goes in is about half the headline rate.
The golden rule is check every six months to see what rate your savings are
earning. And if it is rubbish, move it. As for loyalty, leave it to the
Labradors.
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